Taxation, if explained dramatically, is the financial fuel for any country’s journey to growth and development. If put in simple terms, taxation is the monetary responsibility that must be fulfilled to develop as a nation by both the people and the government.
In the case of a county like Bangladesh, which is rapidly growing economically, taxation plays a vital role in its growth. That being said, a large number of the population is not aware of the different categories of taxation in Bangladesh and fails to categorize their earnings and spending accordingly. This lack of knowledge also causes chaos during the e-tin registration process in Bangladesh.
This article aims to focus on different types of taxation in Bangladesh and explain the basic information that one needs to know about them.
Types of Taxation in Bangladesh
There are three types of taxation in Bangladesh. Each of them serves different categories of businesses and enterprises. Each of them is discussed below.
Value Added Tax
Value Added Tax (VAT) only the taxes vendors add on to products, materials, and services during manufacturing or distribution. It is also the tax buyers pay with the price during the purchase. The vendor pays the government the difference between the amount of manufacturing and the price after the added value and recollects the rest for themselves to balance the taxes they had paid on the inputs before. A VAT is the sales tax which the end consumers pay.
In Bangladesh, the standard rate for VAT is 15%. There are, however, reduced rates on several products. For example- 5% is reduced on stated fruit juices, LPG gas, English Medium Schools, and information technology-enabled services. 7.5% is reduced on paper for packaging, self-copy paper, non-AC restaurant and hotel, and construction firms. 10% is reduced on the printing press, repair and servicing, electric poles, and transport contractor.
- approved basic food products for human consumption
- piscicultural products
- supply of unprocessed agricultural
- horticultural by the producer of the products
- approved charitable institutions
- public health and medical services provided by a government entity
- sale of vacant land
Products like immobile property located outside Bangladesh, products for export, services that are directly provided to land outside Bangladesh, services that are substantially carried out on goods located outside Bangladesh, and services incorporated in the customs value of imported goods are zero-rated.
According to the tax law of Bangladesh, the tax rate for listed companies is 25%, and the tax rate for non-listed companies is 32.5%. The rate for non-listed companies was recently exempted from 35%. The government of Bangladesh also offers tax incentives for overseas companies investing in special economic areas and hi-tech park zones.
Based on the new amendment, an additional surcharge of 2.5 percent is charged on the income of companies in the tobacco sector. There is also a reduction of the corporate income tax rate for companies to 15 percent in the readymade garments sector. The tax rate has also been reduced to 14 percent for companies with internationally recognized green building certificates of the sector.
The tax rate for listed banking companies, insurance companies, and financial institutions is 40% and 42.5% for non-listed ones. The tax rate is 45% for Cigarette manufacturers and mobile phone operators before the additional surcharge.
Companies that produce and export knitted garments and woven garments get an exemption of 20% on corporate income tax. The tax rate of companies engaged in the production or export of jute products is 10%. Usually, a company gets a 50% exemption on export earnings.
As per the Finance Act 2015, any eligible taxpayer with an income above BDT 250,000 and female taxpayers and senior taxpayers of age 65 years and above with an income of BDT300,000 needs to pay income tax. The tax-free income threshold limit for retarded taxpayers is BDT 3,75,000. Listed war-wounded freedom fighters need to pay income tax if the income crosses Tk. 4,25,000.
The minimum tax for any individual differs according to the location of residence. For example, in Dhaka and Chittagong City Corporation area, the tax is BDT 5,000; in other City Corporations area, it is BDT 4,000, and in any other areas, it is BDT 3,000.
Taxation is a vital entity of any and every growing country. Having a certain amount of knowledge about different types of taxation and about the new amendments related to taxation can take the people a long way.
As mentioned before, unawareness about types of taxation among the people of Bangladesh is very common and problematic. This ignorance costs the people a hassle in terms of documenting their incomes as well as getting proper exemption which is rightfully theirs.